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The payroll tax paid by workers increased from 4.2% to 6.2% at
the start of the year. It was temporarily cut back in 2010 to
stimulate consumer spending. The regressive tax is paid by
everybody who earns $113,700 annually or less. That means someone
making the median income of about $50,000 will pay $1,000 a year
more in taxes, or a little more than $19 a week. These receipts
are supposed to pay for Social Security and Medicare, but they
are actually spent along with all other revenues.

I monitor the 260-day moving sum of withheld income and
employment taxes deposited at the US Treasury. It was $1,791
billion on December 18. It jumped $25 billion to $1,816 billion
on January 18. That’s a significant tax increase, especially if
it is annualized, that could depress real GDP at least during the
first quarter. The Treasury’s monthly data show that individual
income taxes totaled $1,174 billion last year, while payroll
taxes totaled $847 billion. Both increased last year along with
payrolls.

Of course, the good news at the start of this year was that
Congress voted to make the Bush tax cuts permanent for 98% of
American taxpayers. That was offset by the bad news about the
higher payroll tax rate. That would certainly explain why the
Consumer Sentiment Index (CSI) slipped in January to the lowest
reading since December 2011. Joining the recent downdraft in the
overall CSI was its present situation component, which had risen
to a cyclical high during November.

Dr. Ed's Blog

Today's Morning Briefing: Going Vertical. (1)
Climbing the Wall of Worry (WOW). (2) Living less dangerously
this year? (3) There’s still a worry list. (4) Fiscal drag is a
drag in US. (5) Will Draghi’s stealth bomber work in Cyprus? (6)
Running out of warm and able bodies in China. (7) It’s getting
hard to breathe in China. (8) Distracting the masses with
xenophobic nationalism. (9) Yet many stocks are soaring,
including many of our favorites. (More for subscribers.)